Claims firms face tough new regime as MoJ cracks down

Cold-calling and wild promises could lead to compensation rulings

Claims management companies (CMCs) could be forced to pay back millions to consumers under new plans announced yesterday by the Ministry of Justice.

The MoJ has handed over responsibility for dealing with complaints about the firms, which handle compensation claims in areas such as payment protection insurance mis-selling and personal injury, on to the Legal Ombudsman. The change will mean CMCs could be forced to pay up to £30,000 in compensation to disadvantaged consumers, and it is believed the limit could be increased to £50,000.

At present CMC customers must lodge complaints with the Ministry of Justice, which regulates the industry but does not have the power to arrange compensation. The new rules – to be enforced from 2013 – will give consumers the chance to claim redress against rogue CMC firms for the first time.

However, the MoJ will continue to regulate the industry through its Claims Management Regulations Unit. Kevin Rousell, the head of the unit, said: "We will continue to target those CMCs who do not comply and we will work in partnership with the Legal Ombudsman to root out those CMCs that take advantage of consumers."

The MoJ has been cracking down on CMCs following public anger over a rising tide of unwanted texts and cold-calling from unscrupulous firms aiming to profit from the £10bn bank mis-selling scandal relating to payment protection insurance (PPI).

Rogue firms make promises of payouts for consumers, even though many are not even eligible for compensation. The Financial Ombudsman warned this year that people in line for compensation had no need to use CMCs as they could make claims themselves without going through a third party.

It forecast about £50m of PPI compensation it will award this year will needlessly go to claims management companies. CMCs charge about 25 per cent of the compensation payout.

Many CMCs also encourage people – through adverts on TV, newspapers and the internet – to sue for personal injury compensation, and for other losses, even though they may have not been involved in an accident.

The MoJ has banned or shut down more than 700 rogue CMCs but there are still around 3,000 in existence in England and Wales. Mr Rousell said the MoJ would now focus on improving standards and taking wider action on rule-breaking CMCs.

Last week it published proposals to ban CMCs from taking fees from customers without a written contract. It also wants to force firms to state that they are regulated by the claims management regulator rather than by the MoJ, to avoid giving the impression that they are endorsed by the government.

Chris Lawrenson, the head of legal services at the Building Societies Association, said urgent action was needed to crack down on rogue firms. "The CMCs operating in the PPI sector are generating by far the most consumer complaints, 74 per cent according the Ministry of Justice," he said. "Worse still, the vast majority of these complaints are made against just 15-20 firms out of the 1,000-plus authorised."

Richard Lloyd at Which? said: "We want to see the Government do more to clean up the CMC industry. We want a ban on upfront fees and cold-calling, and for CMCs to be required to publish online all of their terms and conditions, fees and charges."

Ian Barlow, a director of CMC firm Money Boomerang, hit back at the criticisms. "For thousands of customers, the claims management industry provides a valuable service by simplifying what can be a difficult process," he said.

He admitted that rogue firms had given the sector a bad name. "The CMC industry, particularly in the PPI sector, has occasionally shot itself in the foot."

PROMOTED VIDEO
News
Nadine Gordimer died peacefully at home yesterday
people
Arts and Entertainment
Neil Young performs on stage at Hyde Park
musicAnd his Hyde Park set has rhyme and reason, writes Nick Hasted
News
Women have been desperate to possess dimples like Cheryl Cole's
people Cole has secretly married French boyfriend Jean-Bernard Fernandez-Versini after just three months.
Arts and Entertainment
AKB48 perform during one of their daily concerts at Tokyo’s Akihabara theatre
musicJapan's AKB48 are one of the world’s most-successful pop acts
News
Ian Thorpe has thanked his supporters after the athlete said in an interview that he is gay
people
News
The headstone of jazz great Miles Davis at Woodlawn Cemetery in New York
news
Arts and Entertainment
Brendan O'Carroll has brought out his female alter-ego Agnes Brown for Mrs Brown's Boys D'Movie
filmComedy holds its place at top of the UK box office
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
newsBear sweltering in zoo that reaches temperatures of 40 degrees
Arts and Entertainment
Professor Kathy Willis will showcase plants from the Royal Botanic Gardens at Kew
radioPlants: From Roots to Riches has been two years in the making
Extras
indybestThe tastiest creations for children’s parties this summer
Arts and Entertainment
TV The follow-up documentary that has got locals worried
Arts and Entertainment
Paolo Nutini performs at T in the Park
music
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Service Desk Analyst - ITIL, Windows, Active Directory

£35000 per annum: Harrington Starr: A world leading brokerage is looking for a...

IT Support Technician - URGENT - Graduate, Windows, MS Office

£30000 per annum: Harrington Starr: My client, a researcher of investment idea...

MQ Unix / Linux Systems Engineer - URGENT - Unix, Linux, MQ

£63000 per annum: Harrington Starr: A market leading provider of technology dr...

Trade Desk Specialist - FIX, Linux, UNIX, Windows,SQL, Graduate

£55000 - £65000 per annum: Harrington Starr: A leading global exchange is look...

Day In a Page

Super Mario crushes the Messi dream as Germany win the 2014 World Cup in Brazil

Super Mario crushes the Messi dream

Germany win the 2014 World Cup in Brazil
Saharan remains may be evidence of the first race war, 13,000 years ago

The first race war, 13,000 years ago?

Saharan remains may be evidence of oldest large-scale armed conflict
Scientists find early warning system for Alzheimer’s

Scientists find early warning system for Alzheimer’s

Researchers hope eye tests can spot ‘biomarkers’ of the disease
Sex, controversy and schoolgirl schtick

Meet Japan's AKB48

Pop, sex and schoolgirl schtick make for controversial success
In pictures: Breathtaking results of this weekend's 'supermoon'

Weekend's 'supermoon' in pictures

The moon appeared bigger and brighter at the weekend
Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor